If the Millennial lifestyle subsidy is to return, it could take years. Derek Thompson, a staff writer at US magazine The Atlantic observed last month that “for the foreseeable future, metro residents will have to go about living the old-fashioned way: by paying what things actually cost.”
David Rohrsheim lived the early years of the pricing strategy as a “nerd” in San Francisco in 2010, then awash with new apps invented for the iPhone, before bringing Uber to Australia as the country’s first local boss.
“You were constantly part of a beta test for the future,” Rohrsheim said via email. “Developers could reach critical mass in San Francisco fast and know if their idea was any good. Plenty weren’t, but that was half of the fun.”
At that time, Rohrsheim said, about three quarters of the world’s venture capitalists were based on the city’s Sand Hill Road, which has become a metonym for the industry. That money flowed into firms like Uber.
“In 2012, I remember handing out $20 Uber vouchers myself in Sydney bars,” Rohrsheim said. “That investment can fast-forward a start-up business to its future.”
Part of the logic of this expensive path to growth is that many businesses take scale to become profitable. A delivery company might lose money on its riders’ wages but hope to negotiate better deals with suppliers as it gains more power in the marketplace. If its staff can drop off more goods per delivery, then the profit from those sales will help cover their wages too. Some companies like Uber cannot exist at all without huge numbers of customers and drivers. Without scale, it would take too long for passengers to get a ride and for drivers to get a fare. With scale, the service feels effortless.
Rohrsheim, who is now a start-up investor after leaving Uber, said the approach only worked if the underlying business is sustainable.
“Sometimes you see businesses that are just simply selling $2 coins for $1 — they won’t magically become profitable when they scale,” Rohrsheim said.
Millennials, commonly defined as those born between 1981 and 1996, were the great beneficiaries of this infusion of investor dollars. Born too late for affordable housing and just in time for stagnant real wages, the generation could at least take advantage of cut-price convenience.
But the public markets and venture capitalists are not social workers. They require a return for their investors, which include the nation’s largest pension funds. Uber, which has lost billions for years, has also faced pressure to raise fees (and cut the company’s share) from its couriers and drivers who argue their pay is too low as fuel prices soar and used cars become more expensive.
“A lot has changed since Uber first launched in Australia, but we haven’t made broad changes to recommended rates since 2017,” a spokeswoman said. “It was clear from driver-partner feedback that we needed to revisit this.”
“Subsidizing the early is something that’s easier when money is virtually free, but it gets notably harder as interest rates go up.”
Economist Chris Richardson
Pay sheets seen by The Sydney Morning Herald and The Age for one region show the base price for a ride going from $2 to $2.25, per minute rates going from 38 cents to 40 and the minimum fare rising from $7.50 to $8.50. Koala’s external press representatives declined to comment. A spokeswoman for Neuron said it had only made one marginal increase to its standard rates since launching in 2019, which was same or below its competitors. It upped its monthly pass from $89 to $99 in February this year for some regions, and the spokeswoman said it would continue to run promotions.
Marley Spoon’s Australian chief executive Rolf Weber said the company was working with its suppliers to manage cost and supply chain challenges. “We increased our prices modestly in May and our customers have been very understanding, as they see prices only going up and up in supermarkets,” Weber said.
Richardson said startups that launched offering discount goods were always going to have to raise prices. The necessary change had just been sped up, he said.
Rohrsheim was more optimistic about the future of the start-up world. “There is more venture capital than ever out there looking to back good ideas – particularly in big markets like food and transport – so I don’t think winter will last for too long.”
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